Sh. Darshan Mittal, Khanna V. ITO, Khanna

ITA 814/CHANDI/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2435 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 21-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTALDR
• Keywords: Capital asset; Deemed to accrue or arise in india; Question of law
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 814/CHD/2016 ASSESSMENT YEAR: 2008-09 SHRI DARSHAN MITTAL, VS THE ITO , PROP. M/S NATRAJ INDUSTRIAL CORP., WARD - 1, 241, SUN CITY, AMLOH ROAD, KHANNA. KHANNA. PAN: AACFT9753F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGA L RESPONDENT BY : SHRI S.K.MITTAL,DR DATE OF HEARING : 25.07.2016 DATE OF PRONOUNCEMENT : 01.08.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-2 LUDHIANA DATED 14.03.20 16 FOR ASSESSMENT YEAR 2008-09 CHALLENGING THE LEVY OF PEN ALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 27.12.20 10 AT AN ASSESSED INCOME OF RS. 31,09,210/- AGAINST THE RETURNED INCOME OF RS. 50,113/- BY MAKING AN ADDITI ON OF RS. 30,59,097/- ON ACCOUNT OF LONG TERM CAPITAL GAI N. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS 2 NOTICED BY THE ASSESSING OFFICER THAT IN THIS CASE THE PROVISIONS OF SECTION 45(3) OF THE ACT ARE CLEARLY APPLICABLE IN RESPECT OF CAPITAL ASSET I.E. TRANSFE RRED FROM PROPRIETORSHIP CONCERN TO THE FIRM M/S NATRAJ INDUS TRIAL CORPORATION IN WHICH THE ASSESSEE BECAME A PARTNER AND RECORDED THE REVALUED COST OF THE CAPITAL ASSET (LA ND) OF ERSTWHILE SOLE PROPRIETORSHIP CONCERN AND WITHDREW THE FUNDS IN A SHORT PERIOD JUST TO AVOID CAPITAL GAINS . THE ASSESSING OFFICER, VIDE SEPARATE ORDER LEVIED THE P ENALTY UNDER SECTION 271(1)(C) OF THE ACT. 3. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE LD. CIT(APPEALS) AND WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE IMPUGNED ORDER IN WHICH THE ASSES SEE BRIEFLY EXPLAINED THAT ASSESSING OFFICER LEVIED THE PENALTY IN RESPECT OF ADDITION MADE BY INVOKING PROVISIONS OF SECTION 45(3) OF THE ACT. THE ASSESSEE WAS A PROPR IETOR OF M/S NATRAJ INDUSTRIAL CORPORATION FROM THE VERY BEG INNING AND IT WAS FORMED UPTO 10.09.2007 AND THEREAFTER IT WAS CONVERTED INTO PARTNERSHIP FIRM. THE ASSESSEE BECA ME A PARTNER IN THE SAID PARTNERSHIP FIRM AND ALL THE AS SETS AND LIABILITIES INCLUDING LAND OF THE PROPRIETORY CONCE RN WERE TRANSFERRED TO NEW PARTNERSHIP FIRM. BEFORE CONVER SION OF THE PROPRIETORY CONCERN INTO PARTNERSHIP FIRM, ASSE SSEE HAD REVALUED ITS LAND AT THE AMOUNT OF RS. 40.43 LA CS BASED ON THE REPORT OF GOVERNMENT APPROVED VALUER A S AGAINST THE ACTUAL COST OF RS. 5,55,260/-, ALREADY APPEARING IN THE BALANCE SHEET AND AS A RESULT OF 3 APPRECIATION, THE CAPITAL RESERVES TO THE TUNE OF R S. 34,87,740/- WAS APPEARING IN THE BALANCE SHEET AS O N 31.03.2007. HOWEVER, IN THE YEAR UNDER CONSIDERATI ON, BEFORE CONVERSION, THE SAID RESERVE WAS TRANSFERRED TO CAPITAL ACCOUNT OF THE ASSESSEE AND THE BALANCE AS ON 10.09.2007 IN THE CAPITAL ACCOUNT OF THE PROPRIETOR WAS TRANSFERRED TO THE PARTNERSHIP FIRM AS PARTNERS CA PITAL ACCOUNT. IT WAS SUBMITTED THAT ASSESSEE WAS NOT AW ARE OF THE DEEMING PROVISIONS OF SECTION 45(3) OF THE ACT AND DUE TO LACK OF KNOWLEDGE, THE SAME COULD NOT BE DISCLOS ED IN THE RETURN OF INCOME ON WHICH ADDITION WAS MADE TO THE RETURNED INCOME. THE ASSESSEE HAS DISCLOSED ALL TH E FACTS IN THE NOTES TO ACCOUNTS FORMING PART OF THE BALANC E SHEET VIDE SCHEDULE-J WHEREIN ALL THE FACTS OF RE-VALUATI ON OF THE LAND AS PER APPROVED VALUER HAVE BEEN EXPLAINED. T HE ASSESSEE HAS, THEREFORE, NOT CONCEALED THE PARTICUL ARS OF INCOME AND HAS ALSO NOT FURNISHED ANY INACCURATE PARTICULARS OF INCOME. THEREFORE, PENALTY IS NOT L EVIABLE. THE ASSESSEE RELIED UPON DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS LTD. 32 2 ITR 158 AND PRICE WATERHOUSE COOPERS PVT. LTD. V CIT 34 8 ITR 306. 4. THE LD. CIT(APPEALS), HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND NOTED THAT ASSESSEE ACCEPTED THE ABOVE ADDITION AT ASSESSMENT STAGE. T HE ASSESSEE HAS FAILED TO EXPLAIN ANY REASON WHICH PRE VENTED HIM TO FILE ACCURATE DETAILS OF LONG TERM CAPITAL G AIN IN THE 4 RETURN OF INCOME THEREFORE, SECTION 45(3) OF THE AC T WOULD APPLY. HE HAS RELIED UPON DECISION OF THE DELHI HI GH COURT IN THE CASE OF ZOOM COMMUNICATION PVT. LTD. 3 27 ITR 510 AND DISMISSED THE APPEAL OF THE ASSESSEE. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMI TTED THAT UPTO 10.09.2007, THE ASSESSEE WAS PROPRIETOR O F M/S NATRAJ INDUSTRIAL CORPORATION WHICH WAS CONVERTED I NTO PARTNERSHIP FIRM ON 11.09.2007. HE HAS REFERRED TO PB-28 WHICH IS REPLY FILED BEFORE ASSESSING OFFICER IN WH ICH IT WAS EXPLAINED THAT SINCE ASSESSEE WAS NOT RUNNING W ELL ON ACCOUNT OF SHORTAGE OF FUNDS, THEREFORE, ASSESSEE W ANTED TO RAISE LOANS FROM BANKING INSTITUTIONS BUT THE VA LUE OF THE ASSET OF THE PROPRIETORSHIP CONCERN WAS NOT ADE QUATE. IT WAS CONSIDERED TO RAISE THE VALUE OF LAND IN THE BOOKS OF ACCOUNT TO BRING IT AT PAR WITH THE MARKET VALUE OF THE LAND. AS A RESULT, THE ASSESSEE GOT THE ABOVE LAND S REVALUED FROM GOVERNMENT APPROVED VALUER WHO HAS SUBMITTED HIS REPORT ON 26.03.2007 AND ESTIMATED TH E VALUE OF LAND AT MARKET PRICE AT RS. 40,43,000/-. COPY OF THE VALUERS REPORT WAS ALSO FILED. THE COPY OF TH E LAND ACCOUNT FOR ASSESSMENT YEAR 2007-08 WAS ALSO FILED AND IT WAS SUBMITTED THAT LAND WAS REVALUED IN THE BALANCE SHEET AS ON 31.03.2007. COPY OF THE SAID ACCOUNT ENDING 31.03.2007 IS FILED AT PAGE 34 OF THE PAPER BOOK TO SHOW THAT AMOUNT OF RS. 34,87,740/- ON ACCOUNT OF REVALU ATION OF THE LAND WAS TRANSFERRED TO CAPITAL RESERVE ON 5 26.03.2007. HE HAS, THEREFORE, SUBMITTED THAT LAND WAS REVALUED IN PRECEDING ASSESSMENT YEAR 2007-08. COP Y OF THE ACCOUNT OF ASSESSEE AS ON 10.09.2007 IS ALSO FI LED FOR ASSESSMENT YEAR 2007-08 DISCLOSING THE SAME AMOUNT OF CAPITAL RESERVE BY RS. 34,87,740/-. 5(I) THE LD. COUNSEL FOR THE ASSESSEE ALSO REFERR ED TO PB-22 WHICH IS NOTES ON ACCOUNTS SCHEDULE-J FORMING PART OF THE BALANCE SHEET IN WHICH ASSESSEE HAS MEN TIONED THAT LAND HAS BEEN VALUED AT MARKET PRICE AS PER GOVERNMENT VALUERS REPORT AND FIXED ASSET EXCEPT L AND ARE STATED AT DOWN VALUE. THE LD. COUNSEL FOR THE ASSE SSEE, THEREFORE, SUBMITTED THAT ASSESSEE SINCE DISCLOSED ALL THE FACTS BEFORE AUTHORITIES BELOW THEREFORE, IT IS NOT A CASE OF CONCEALMENT OF INCOME OR FILING INACCURATE PARTICUL ARS OF INCOME. THE ADDITION IS MADE BY APPLYING DEEMING PROVISIONS ONLY AND ALSO REFERRED TO PB-35 WHICH IS AFFIDAVIT OF COUNSEL FOR ASSESSEE IN WHICH HE HAS A FFIRMED THAT THERE WAS OMISSION ON HIS PART NOT TO INCLUDE DEEMED INCOME IN THE RETURNED INCOME. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT WHEN THIS FACT CAME TO THE NOTICE OF THE ASSESSEE, ASSESSEE ACCEPTED THE M ISTAKE AND DID NOT CHALLENGE THE ADDITION BEFORE THE APPEL LATE AUTHORITIES. HE HAS RELIED UPON FOLLOWING DECISION S : I) ORDER OF ITAT CHANDIGARH BENCH IN THE CASE OF ITO V QUIXOTIC HEALTHCARE 45 CCH 19 IN WHICH IT WAS HELD AS UNDER : 6 PENALTY U/S 271(L)(C) CAN BE LEVIED FOR CONCEALING OR FURNISHING INACCURATE PARTICULARS OF INCOME AND WHEN ASSESSEE MADE FULL DISCLOSURE OF IMPUGNED AMOUNT THAT W AS DULY DISCLOSED IN BALANCE SHEET, INVOCATION OF EXPL. 1 TO SECTION 271(1)(C) D OES NOT ARISE. II) DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE O CIT V DEEPAK KUMAR 232 CTR 78 IN WHICH IT WAS HELD AS UNDER : ASSESSEE HAVING FILED THE RETURN OF INCOME CLAIMING EXEMPTION UNDER S. 10(36) IN RESPECT OF PROFIT ON SALE OF SHARES ON TH E BONA FIDE BELIEF BASED ON THE ADVISE OF HIS COUNSEL AND AFFIDAVIT OF THE COUNSEL ADMITTING HIS MISTAKE BEING ACCEPTED BY THE APPELLATE AUTHORITY WHILE DELETING THE PENALTY, NO SUBSTANTIA L QUESTION OF LAW ARISES. III) ORDER OF ITAT CHANDIGARH BENCH IN THE CASE OF CIT V PARABOLIC DRUGS LTD. 37 ITR (TRIBUNAL) (CHD) 16 IN WHICH IT WAS HELD AS UNDER : IMPOSITION OF PENALTY WOULD BE UNWARRANTED IN A CA SE WHERE ASSESSEE COMMIT INADVERTENT AND BONAFIDE ERROR AND HAD NOT INTENDED TO OR ATTEMPTED TO EITHER CONCEAL ITS INCO ME OR FURNISH INACCURATE PARTICULARS. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT HAD THE ASSESSMENT BE NOT TAKEN ON SCRUTINY, THE ASSESSEE W OULD HAVE EVADED THE PAYMENT OF TAXES. HE HAS SUBMITTED THAT PENALTY IS STRICTLY A CIVIL LIABILITY AND RELIED UP ON DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF DHARMENDRA TEXTILE & PROCESSORS 306 ITR 277 AND ATU L MOHAN BINDAL 317 ITR 1. HE HAS ALSO SUBMITTED THAT FINDINGS GIVEN IN THE ASSESSMENT PROCEEDINGS ARE RE LEVANT IN PENALTY PROCEEDINGS. 7. I HAVE CONSIDERED RIVAL SUBMISSIONS. THE FACTS AND MATERIAL ON RECORD CLEARLY PROVED THAT THE ASSESSEE REVALUED LAND AS PER MARKET PRICE DURING THE PERIOD 01.04.2006 TO 31.03.2007 WHEN HE WAS PROPRIETOR OF M/S 7 NATRAJ INDUSTRIAL CORPORATION. THE ASSESSEE DID IT ON THE BASIS OF REPORT OF GOVERNMENT APPROVED VALUER DATED 26.03.2007. THE ACCOUNTS OF THE ASSESSEE SHOW THAT RE- VALUATION WAS DONE ON THE SAME DAY ON 26.03.2007. T HUS, THE ASSESSEE DECLARED THE RE-VALUATION OF THE LAND AS PER MARKET PRICE IN ITS ACCOUNTS IN PRECEDING ASSESSMEN T YEAR 2007-08. SIMILAR FACTS WERE ALSO DISCLOSED BY TRAN SFERRING THE PROPERTY INTO THE PARTNERSHIP FIRM AFTER THE CONSTITUTION OF THE FIRM ON 11.09.2007 AND ALL THES E FACTS WERE ALSO DISCLOSED TO THE REVENUE DEPARTMENT AS WE LL AS BEFORE ASSESSING OFFICER AT THE ASSESSMENT STAGE. THEREFORE, ASSESSEE MADE FULL DISCLOSURE OF THE RE- VALUATION OF THE LAND IN ITS BOOKS OF ACCOUNT AS WE LL AS IN BALANCE SHEET, NOT ONLY IN ASSESSMENT YEAR UNDER AP PEAL 2008-09 BUT IN PRECEDING ASSESSMENT YEAR 2007-08 IN ITS PROPRIETORY CONCERN. THE EXPLANATION OF THE ASSESS EE HAD BEEN THAT DUE TO INADVERTENT AND BONAFIDE ERROR, TH E DEEMED INCOME COULD NOT BE INCLUDED IN THE INCOME O F THE ASSESSEE ON ACCOUNT OF LONG TERM CAPITAL GAIN. IN SUPPORT OF THIS, AFFIDAVIT OF THE COUNSEL FOR ASSESSEE IS A LSO PLACED ON RECORD. THE MATERIAL ON RECORD ALSO SUGGEST THA T COMPLETE DETAILS WERE ALSO DISCLOSED IN THE NOTE ON ACCOUNTS OF THE PROPRIETORY CONCERN OF THE ASSESSEE . PB- 22 NOTE ON ACCOUNT(SCH-J) WOULD ALSO SHOW THAT THER E MAY NOT BE A TRANSFER OF CAPITAL ASSET IN ASSESSMENT YE AR 2008-09 BECAUSE REVALUATION OF LAND WAS DONE ON 26.03.2007 I.E. IN PRECEDING ASSESSMENT YEAR 2007- 08. 8 7(I) IT IS WELL SETTLED LAW THAT QUANTUM AND PENALT Y PROCEEDINGS ARE INDEPENDENT AND DIFFERENT. EVEN IF QUANTUM ADDITION HAS BEEN CONFIRMED WHICH ARE RELEV ANT AND HAVE A PROBATIVE VALUE, THE ASSESSEE STILL COUL D EXPLAIN ON THE BASIS OF THE MATERIAL ON RECORD THAT IT IS NOT A FIT CASE OF LEVY OF PENALTY. THE ASSESSEE IN THE PENALTY PROCEEDINGS HAVE RIGHTLY CONTENDED THAT IT WAS A BONAFIDE ERROR ON THE PART OF THE ASSESSEE IN NOT I NCLUDING THE DEEMED INCOME WHICH HAVE ATTAINED FINALITY BECA USE ASSESSEE DID NOT CHALLENGE THE ASSESSMENT ORDER BEF ORE APPELLATE AUTHORITIES BUT THE FACT REMAINED THAT RE - VALUATION WAS DONE IN PRECEDING ASSESSMENT YEAR 200 7-08 IN RESPECT OF LAND ON THE BASIS OF REPORT OF APPROV ED VALUER DATED 26.03.2007 AND CORRESPONDING ENTRIES W ERE ALSO MADE IN THE ACCOUNTS OF THE ASSESSEE ENDING 31.03.2007, THEREFORE, IT MAY NOT BE A FIT CASE OF LEVY OF PENALTY IN ASSESSMENT YEAR UNDER APPEAL I.E. 2008-0 9. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V NATH BROTHERS EXIM INTERNATIONAL LTD. 288 ITR 670 HELD DISMISSING THE APPEAL, THAT THERE WAS FULL DISCLOS URE OF RELEVANT MATERIAL. IT COULD NOT BE SAID THAT THE C ONDUCT OF THE ASSESSEE ATTRACTED THE PROVISIONS OF SECTION 27 1(1)(C) OF THE ACT. THE CANCELLATION OF PENALTY WAS JUSTIF IED. 8. CONSIDERING THE ABOVE DISCUSSION, I AM OF THE VI EW ASSESSEE DISCLOSED ALL COMPLETE FACTS ON THIS ISSUE IN PRECEDING ASSESSMENT YEAR 2007-08 AND 2008-09 AND EXPLANATION OF THE ASSESSEE IS BONAFIDE THAT DUE TO 9 INADVERTENT ERROR, THE DEEMED INCOME COULD NOT BE INCLUDED IN ITS INCOME ON ACCOUNT OF APPLICABILITY OF PROVISIONS OF SECTION 45(3) OF THE INCOME TAX ACT, THEREFORE, IT MAY NOT BE A CASE OF LEVY OF PENALTY. DECISIONS OF DIVISION BENCH OF ITAT CHANDIGARH BENC H RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE ARE BIN DING ON THE SINGLE BENCH. I CLARIFY HERE THAT THE FINDINGS IN THIS ORDER SHALL NOT AFFECT THE ADDITION ALREADY MADE ON QUANTUM IN ASSESSMENT ORDER. I, THEREFORE, SET ASI DE ORDERS OF AUTHORITIES BELOW AND CANCEL THE PENALTIE S. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 1 ST AUGUST,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH